6

MEDIUM TERM FISCAL POLICY STATEMENT

A. FISCAL INDICATORS ROLLING TARGETS AS PERCENTAGE OF GDP
(at current market prices)
Revised
Estimates
2014-15

Budget
Estimates
2015-16

Targets for
2016-17

2017-18

1.

Effective Revenue Deficit

1.8

2.0

1.5

0.0

2.

Revenue Deficit

2.9

2.8

2.4

2.0

3.

Fiscal Deficit

4.1

3.9

3.5

3.0

4.

Gross Tax Revenue

9.9

10.3

10.5

10.7

5.

Total Outstanding Liabilities2

at the end of the year

46.8

46.1

44.7

42.8

Notes:
1. GDP is the Gross Domestic Product at current market prices as per new series from 2004-05.
2. Total outstanding liabilities include external public debt at current exchange rates. For projections, constant exchange
rates have been assumed. Liabilities do not include part of NSSF and total MSS liabilities which are not used for Central
Government deficit.

1.
The performance on select fiscal indicators for
the current financial year and rolling targets over the
next financial years are presented above. As
explained in this chapter and the next, the changes
were necessitated due to emerging Government
priorities and compositional shift in the fiscal relations
between the Centre and States, following the
recommendations of the Fourteenth Finance
Commission.

maintained its stance on the deficit, adopting 3.9 per

cent fiscal deficit target in FY 2015-16 as compared
to 4.1 per cent in FY 2014-15. Though, it represents
a deviation from 3.6 per cent adopted in the fiscal
roadmap; the recalibration was necessitated to
maintain fine balance between the need to continue
with policy of fiscal rectitude to provide sufficient space
for monetary policy easing on one hand and the need
to adequately provide for social and welfare
programmes and increase public spending in core
sectors to give fillip to growth, on the other hand. Thus,
the budget 2015-16 opted for keeping the deficit target
range bound i.e. under the 4 per cent level, while
shifting the target of 3 per cent by one year viz. from
2016-17 to 2017-18. Accordingly, deficit targets of
3.9, 3.5 and 3.0 per cent have been adopted in next
three years 2015-16, 2016-17 & 2017-18 respectively.
It is noteworthy that the fiscal deficit target has been
kept range bound, between to 3 to 4 per cent levels;
attaining the 3 per cent over the Medium term
framework. The approach of progressively bringing
down the deficit has been retained in the Budget 201516 despite resource crunch following changes in the
revenue sharing. Similarly, revenue targets will be
recalibrated and revision to the FRBM Act / Rules is
being introduced in the Parliament along with the
budget.

2.
Performance in current fiscal year established
the robustness of the fiscal correction process.
Several macro-economic developments assisted in
Governments efforts to remain steadfast in the pursuit
of consolidation. While, tax revenues remained
sluggish growth revival, fall in international crude oil
prices, gains on the current account deficit etc. eased
pressure on subsidies and provided scope for
expenditure management to meet the fiscal targets.
3.
The General Budget 2015-16 is a step further
in the direction of fiscal consolidation albeit with
revised roadmap. As the first year of the 14th Finance
Commission Award period, with higher devolution of
taxes to States, Budget 2015-16 is presented with
lower tax resources at the disposal of the Centre.
Thus, the budget size contracted marginally as
compared to BE 2014-15, though it marks an increase
of 5.7 per cent over RE. However, Government has
6

7
4.
14th Finance Commission (FFC) Award has been
one of the themes of the budget 2015-16. As
discussed in the fiscal policy statement, Government
had set in motion the institutional changes necessary
for implementing co-operative federalism by way of
replacing Planning Commission with National Institute
for Transforming India (NITI), re-designing many of
the centrally sponsored schemes etc. By providing a
quantum jump in the States share of taxes, FFC has
enlarged the scope of development programme by
sharing the onus between Centre and States. It is
contextual that the Finance Commission has
mandated in letter what government had already
initiated in spirit in the FY 2014-15.
5.
In the emerging scenario, Centre will continue
to provide enabling platform, it is for the States to take
lead in various developmental programmes based on
local needs and aspirations. Thus, budget 2015-16
provides modest increase in Non-Plan spending, basic
minimum jump in the Central sector programmes.
None-the-less, Government has protected the welfare
programmes under social sectors, including outlays
for minorities, disability, social justice, health,
education etc. In other sectors the share of centre
has been reduced with greater contribution coming
from States in view of higher devolution. Similarly, in
some other State subjects, schemes have not been
provided allocation from Centre, as States may like to
decide on the efficacy and need for such schemes.
The shift is monumental, in terms of changes in the
mode of implementation and will undoubtedly require
a transition phase. Therefore, certain minimum
provision has been made to meet the requirement in
the first quarter, with a proviso to re-examine the need
for continuation in the initial part of the financial year.
Going forward, there is need to change the design of
many schemes as also the implementing mechanism
in line with the changes set in motion in this budget.
The details are given in the later section on Plan
expenditure.

1.6 per cent of the GDP. On the expenditure side,

government has provided realistic allocations for
subsidies based on the assessment of exchange rate
and lower crude oil prices in the international market.
In FY 2014-15, there was scope for some saving in
the subsidy bill for petroleum and fertilizer, while
additional allocation had to be made for Food. Easing
of international prices of crude oil provided the much
needed opportunity to introduce some reforms in fuel
prices as also clear some of the financial burden.
Additional allocation has been made to fill cavern for
building up reserves in RE 2014-15. As ratio of GDP,
it is expected that major subsidies would come down
from 2.0 per cent in RE 2014-15 to 1.6 per cent in BE
2015-16. With deregulation of diesel prices and
rationalization of LPG subsidy, it is expected that the
provision for fuel subsidy kept in the budget should
suffice. However, increased allocation for food subsidy
has been retained in view of additional requirements
to meet the demand from National Food Security Act.
While limiting the Non-plan expenditure to 9.3 per cent
of the GDP in 2015-16, an increase of 8.2 per cent
over the RE 2014-15 has been provided to meet the
commitments of the government.

7.
Non-debt capital receipts have been revised
down ward at `42,236 crore in RE 2014-15. In B.E.
2015-16, to meet the additional resources requirement
following shrinking of tax revenues for the centre due
to higher devolution to States, the non-debt capital
receipts has been revised upwards and targeted
at80,253 crores. Significantly net taxes to Centre,
as ratio of GDP, has declined from 7.2 per cent in RE
2014-15 to 6.5 per cent in B.E. 2015-16. As a result,
a total revenue receipt of the centre has declined from
8.9 per cent in RE 2014-15 to 8.1 per cent in B.E.
2015-16, as ratio of GDP. Debt receipts have
increased in nominal terms, while reducing the fiscal
deficit target to 3.9 per cent. Thus, the total resources
of centre after absorbing the impact of FFC and
continuing on the path of consolidation, albeit with
revised roadmap, has declined marginally from BE
6.
In terms of trends, the gross tax revenue 2014-15.
estimates in FY 2015-16 have been estimated with
The fiscal rules required elimination of effective
growth of 15.8 per cent over RE 2014-15, which 8.
implies tax to GDP ratio at 10.3 per cent. Total revenue deficit and limiting revenue deficit to 2 per
expenditure in FY 2015-16 is estimated to grow cent by 31st March, 2015. As pointed out in the MTEF
marginally by 5.7 per cent over RE and is pegged at statement presented along with the Budget 2014-15,
12.6 per cent of GDP. As compared to BE 2014-15, this stipulation required removing imbalances on the
total expenditure shrinks by 1 per cent due to shrinking revenue account. While, fiscal deficit could be steered
resource base and fiscal consolidation following FFC, as per the roadmap adopted in 2012-13, the targets
as explained above. Non-tax revenue has shown on revenue account required compositional shift in
growing trends in last couple of years. It has been the designing of Plan schemes with greater emphasis
revised upwards, despite high base in FY 2014-15. in transfer of funds for creation of capital assets. ReHowever, on an increased base the growth in 2015- designing of centrally sponsored schemes was
16 over the RE is about 1.8 per cent, but it is slated at initiated in FY 2014-15, the scope was however limited

8
as the changes have to be balanced keeping in view
the spending in social and welfare sectors for the
protection of vulnerable sections. Revenue deficit in
budget 2015-16 has been retained at 2.8 per cent to
meet the commitment under various welfare
programmes. It is proposed to re-align the targets on
revenue account, with the fiscal deficit target. Thus,
it is proposed to set the target for elimination of
effective revenue deficit and confining the revenue
deficit at two per cent of GDP by 31st March, 2018;
co-terminus with the fiscal deficit target. Necessary
amendment in the FRBM Act and Rules are being
introduced accordingly.
Fiscal Outlook for 2016-17 to 2017-18
9.
The General Budget 2015-16 re-affirms
Governments commitment to carry the process of
fiscal consolidation. Accordingly, the fiscal deficit
target of 3.9 per cent has been retained in this years
fiscal policy. Going forward, in the medium term fiscal
deficit target will be progressively reduced to 3.5 and
3.0per cent in FY 2016-17 and 2017-18 respectively.
This implies limited fiscal space over the medium term
period. The process of fiscal rectitude which has so
far been largely on the expenditure side will have to
be matched by greater resource mobilization in coming
years.
10. Fiscal parameters on the revenue account,
revenue deficit and effective revenue deficit, presented
in the general budget 2015-16 remain out of bounds
set forth in the fiscal rules. While revenue deficit in
2015-16 at 2.8 per cent shows a marginal
improvement from 2.9 per cent in RE 2014-15,
Effective Revenue Deficit climbs up from 1.8 per cent
in RE 2014-15 to 2.0 per cent in BE 2015-16. This is
mainly due to changes in the nature of transfer of
resources to States. It is interesting to note that
following the recommendations of FFC, the untied
transfers to States (devolution of taxes and duties)
which was about 49 per cent of total transfers in 201415 marks a steep rise to 63 per cent in 2015-16.
11.
In order to protect the interests or poor and
needy, Government has decided to continue welfare
programmes while giving greater space to States in
development schemes. Thus, much of the funds that
were hitherto considred as grant-in-aid for capital
expenditure are subsumed within untied funds that
are now to be transferred to States directly. It has been
decided, accordingly, to relax some of the fiscal rules
with regard to revenue account imbalances, while
continuing with the fiscal consolidation stance, by
couple of years. It is expected that the transition phase
can be spanned out in FY 2015-16, whereupon the

correction on the revenue account can be effectively

implemented. Accordingly, necessary amendment to
the FRBM Act is being proposed in the Budget 201516. The amendment will be followed by notifying new
Rules.
12. However, it is pertinent to note that the resource
base of the Centre will be constrained following the
implementation of the FFC. With steep jump in the
sharing pattern of tax revenues, the revenues of the
States, which is surplus in most of the cases, will be
further augmented on one side and the Centre will
face resource crunch in one of the difficult phases of
consolidation underway. While, the revenues are
constrained in the FY 2015-16, it would continue over
the medium term framework in FY 2016-17 and 201718. Moreover, the 7th Pay Commission impact may
have to be absorbed in 2016-17. The phase of
consolidation, extended by one year, will be also be
spanning out in the period. Thus, in the medium term
framework the fiscal position will continue to be
stressed. However, with necessary corrections on the
Plan side under the new paradigm of Centre-State
fiscal relationship and reforms on the subsidies, with
better targeting and policy initiatives, it is expected
that over the medium framework much of the fiscal
correction would have taken shape, leaving room for
building up better fiscal management thereupon. The
change is monumental; and needs dextrous
manoeuvring in this initial phase.
13. Gross tax revenue is estimated to increase from
9.9 per cent of GDP in RE 2014-15 to 10.3 per cent in
BE 2015-16 (reflecting growth of 15.8 per cent over
RE 2014-15), which is however lower than peak of
11.9 per cent of GDP achieved during 2007-08. With
economy poised for economic turnaround, it would
be possible to get back to the achieved level of tax to
GDP ratio. In the medium term targets, gross tax
collection as percentage of GDP is projected at 10.5
per cent in 2016-17 and 10.7 per cent in 2017-18.
14. Despite the resource crunch in FY 2015-16,
government has remained steadfast in its commitment
to reduce the fiscal deficit from 4.1 per cent of GDP in
RE 2014-15 to 3.9 per cent in B.E. 2015-16. Total
expenditure as per cent of GDP is reducedfrom 13.3
per cent in RE 2014-15 to 12.6 per cent in B.E. 201516. Going forward, it is estimated that the expenditure
of the government will be progressively reduced to
12.1 and 11.6 per cent of the GDP in the financial
years 2016-17 and 2017-18 respectively. On the other
hand the tax revenues of the Centre are estimated to
reduce sharply from 7.2 per cent of GDP in RE 201415 to 6.5 percent in BE 2015-16, with the change in

9
and touched a level of 11.9%. Average annual tax
growth rate during the five year period in 2003-08 was
21.3%, where annual tax growth was highest at 28.9%
in 2006-07. These reforms were mainly driven by
direct tax whose average annual growth rate during
this period was about 28%. The buoyancy of tax
revenue with respect to GDP was almost 1.5 during
this period. This trend of high tax growth was
moderated due to global economic crisis and the tax15. Non-tax revenue has emerged as one of the GDP ratio slid to 10.8% in 2008-09 and further to 9.6%
important components of government resources, in in 2009-10.
the present phase of fiscal consolidation. With tax
revenues under pressure due to slowdown in the 18. In years, following global crisis, the tax revenues
economic growth, the rise in non-tax revenues has declined due to reduction in custom duties and central
played key role in the fiscal rectitude in recent years. excise as part of the stimulus package. Subsequent
Non-tax revenues grew by 45 per cent in 2013-14 over slowdown in the economy also impacted the revenues.
the previous year, 2012-13. In the general budget From 2012-13 onwards, fiscal consolidation phase has
2014-15 it was estimated to grow by 6.7 per cent over been marked by taxes performing lesser than the
the last years actuals, to reach level of 1.7 per cent estimates. Consequently, the fiscal correction has
of GDP. In RE 2014-15, it has been estimated at 1.7 been largely an exercise in expenditure management.
per cent of GDP, which is 2.5 per cent higher than BE The tax to GDP ratio has remained around 10 per
2014-15. In General Budget 2015-16, Non-tax revenue cent with tax buoyancy less than one.
receipts are estimated to grow by 1.8 per cent over
RE 2014-15.However, the growth in this component 19. The need for realistic projection in tax growth
of revenue is limited and it is expected that in next was much needed. This base correction has been
two years it will register modest growth. It is estimated made in the Budget 2015-16. Despite revival of growth
that as ratio of GDP, non-tax revenue will be at 1.5 in the current year, the tax revenues remained under
and 1.4 per cent in the financial year 2016-17 and stress. Easing of inflationary pressure ensured that
2017-18 respectively.
the nominal growth remained stagnant despite higher
real growth in the economy. Thus, indirect taxes
16. Despite extension of target for fiscal
remained sluggish, though direct taxes did register
consolidation by one year, Budget 2015-16 continues
growth on the expected lines. Overall, the Gross taxes
on the path or progressively reducing the gap between
were revised downwards by 8.3 per cent in the RE
Government resources and spending. Thus, total
2014-15, implying tax to GDP ratio of 9.9 per cent as
liabilities of the Central Government, as a percentage
opposed to 10.6 per cent at the B.E. stage.
of GDP, will also see a decline continuing with the
trend in the recent past. At end of 2014-15, total liability Accordingly, the Gross tax revenue has been
of the Government was estimated at 46.8 per cent of estimated at 10.3 per cent of GDP in Budget 2015GDP which will reduce to 46.1 per cent by the end of 16, with a growth of 15.8 per cent over RE 2014-15.
2015-16. Continuing the declining trend it is likely to Projections for 2015-16 have been made taking into
reduce to 44.7 per cent in 2016-17 and 42.8 per cent account a realistic economic recovery and continuation
in 2017-18. A progressive reduction in debt-GDP ratio of set of tax measures announced in the budget for
of the Government will ease the interest burden and 2014-15. It is also expected that reforms in the
allow more space for the government to spend administrative machinery oriented towards strict
particularly on infrastructure development without implementation will yield result.
taking recourse to additional borrowings.
Details of Tax Measures
B. Assumptions underlying the fiscal indictors
20. With above measures, tax revenues in BE 201516 are targeted to grow at 15.8 per cent over the RE
1.
Revenue receipts.
of 2014-15. The tax to GDP ratio estimated in the
(a) Tax-Revenue
Budget 2015-16 is 10.3 per cent. With revival of the
growth, and stabilization of various macro-economic
17. Tax revenues as a percentage of GDP, riding parameters, favourable international prices for crude
on high economic growth and aided by rich menu of oil etc. afford an opportunity to attain the revenue
tax reform measures, reached its peak by 2007-08 targets in FY 2015-16.
devolution. Over the period of next two years it is
expected to increase marginally to 6.7 and 6.8 per
cent respectively. With improvement in the macroeconomic conditions and revival of growth, it is
expected that tax reforms including implementation
of GST on the indirect taxes side and rationalization
of tax structure in the direct taxes will restore the total
tax revenues of the government to the higher levels.

10
21. Tax reforms and tax efforts are the most critical
elements for the overall process of fiscal consolidation.
Without a robust and ambitious tax growth it is not
possible to achieve the fiscal roadmap which the
Government has embarked upon. While the tax
projections need to be realistic, at the same time they
need to be ambitious to enable Government in
achieving the fiscal roadmap without resorting to more
than required expenditure compression. Overall, while
tax should increase as percentage of GDP,
expenditure should progressively reduce as
percentage of GDP till the fiscal consolidation goals
are fully met. While the ultimate objective should be
to bring back the tax to GDP ratio to the pre-crisis
levels, it should be calibrated gradually in consonance
with the prevailing macro-economic situation. As the
tax to GDP ratio increases, incremental improvements
would be more gradual and difficult to achieve. The
outlook for tax revenues for the years 2016-17 and
2017-18 have been designed keeping this in mind.
As shown in table above the tax to GDP ratio is
projected to reach 10.5 per cent in 2016-17 and 10.7
per cent in 2017-18. This implies an average
buoyancy of 1.25 in next three years which is a realistic
target. This will require an average tax growth of 15.0
per cent during this period which would be possible
through a combination of better tax effort. It may be
contextual that a much higher tax growth has been
achieved in the previous decade.
(b)

Devolution to States

and license fees, royalty from off-shore oil fields, profit

petroleum and various receipts from telecom sector.
In FY 2013-14 ` 1,98,870 crore was realized, recording
a growth of 45 per cent over the previous year, at 1.8
per cent of GDP. In the general budget 2014-15, nontax revenues were estimated at ` 2,12,505 crore
marking a growth of 6.9 per cent over actuals of 201314. In RE 2014-15, it has been revised upwards to `
2,17,832 crores, at 1.7 per cent of GDP it marks an
increase of 2.5 per cent over BE 2014-15. This
component of revenue has shown marked increase
in last years and has grown to be comparable with
one of the Indirect taxes in nominal terms. However,
on an increased base there is little scope to increase
this item of revenues. In BE 2015-16, Non-tax revenue
receipts are estimated at 1.6 per cent of GDP which
marks 1.8 per cent increase over RE 2014-15.
24. Interest receipts of Government that are mainly
from Railways, State Governments and loans
extended by central ministries and departments to
Central PSUs.Interest receipts from States will be
declining overall as net lending from states has
considerably reduced after disintermediation as per
the recommendations of 12th Finance Commission.
Dividends receipts of the Centre may be split into two
parts, one from RBI and banks and the other is from
various PSUs. While dividends from PSUs should
grow as their profit grows, they would be moderate
due to disinvestment of Government stake in PSUs.
On the contrary, since the Government would be
infusing equity into banks to meet the CRAR
requirement of BASEL III, the dividend from banks
would increase relatively faster due to the coupled
effect of increase in profit and increase in GoI stake
in public sector banks. Another important component
under the Non-tax revenue has been the Telecom
receipts. It has grown to be significant component
since the turn of this century, with the boom in
telecommunication sector. The expected revenues
have not been forthcoming due to litigations in some
of the auctions, but it is expected to continue to be
major source of revenue over the medium term
framework.

22. As mentioned earlier, FY 2015-16 is the first year

of the Award period of the 14th Finance Commission.
FFC has mandated major jump in the sharing of taxes
between the centre and the States, thereby re-defining
the fiscal relationship. The paradigm shift is nonethe-less in consonance with Governments drive
towards co-operative federalism. At 42 per cent
devolution, it is expected that the States share will
increase from ` 3.38 lakh crores in FY 2014-15 to
about ` 5.24 lakh crores in FY 2015-16, a quantum
jump. Interestingly, tax revenues to centre as ratio of
GDP will decline from 7.2 per cent in RE 2014-15 to
6.5 per cent in B.E. 2015-16. It will marginally improve
to 6.7 per cent and 6.8 per cent in the FY 2016-17 25. Mostly following the assumptions above, the
and 2017-18 respectively.
outlook for non-tax revenues for 2016-17 and 201718 have been put in place. Certain one-time receipts
(c) Non Tax Revenues
budgeted in earlier financial year will not be available
23. Non Tax Revenues of the Centre mainly as these were due to unlocking of resources. With
comprise of interest and dividend receipts of the regard to dividends from PSUs, the policy of the
Government, receipts from the services provided by Government would be to enable them in investing their
Central Ministries and Departments like supply of retained earnings in their capital projects. However,
central police force to various agencies, issue of in the absence of any concrete capital investment plan
passport and visa, registration of companies, patents PSUs should pay their cash surpluses as dividend to

11
Government and other shareholders. From telecom
sector it has been assumed that renewal of licenses
issued for 20 years earlier will come up for renewal
during the projection period. The success of Spectrum
auctions scheduled in near future will translate into
higher revenues on regular basis over the term of
allocation. This will entail stable stream of income to
the government. Based on the assumptions, the nontax revenue for 2016-17 and 2017-18 has been
projected at 1.5 per cent and 1.4 per cent of GDP
respectively.

2015-16, receipts from disinvestment have been

estimated at ` 41,000 crore. However, as additional
resource mobilization to meet the revenue shortfall
following 14th Finance Commission, ` 28,500 crores
have been estimated to flow from strategic
disinvestments. These include sale of government
holdings in non-government commercial entities,
SUUTI, BALCO, HZL etc. Over the medium term
frame work, an amount of ` 55,000 crore and ` 50,000
crores has been estimated for the years 2016-17 and
2017-18 respectively.
(c)

2.

Capital receipts

(a)

Recovery of loans and advances

26. Net recovery of loans from the States have

declined during the 12th FC award period on account
of gradual disintermediation by Central Government
and the debt consolidation and debt waiver scheme.
Since further loans are not given to State governments,
except eternally aided projects which are passed
through on back-to-back basis, this receipt will decline
over years as old loans get liquidated. The repayment
of loans from Central PSEs is also impacted on
account of defaults from PSEs that are either sick or
under revival through BIFR. The waiver of interest or
write off of loans of sick PSUs has reduced the
potential future receipts. Recovery of loans and
advances was estimated at ` 10,527 crore in
B.E.2014-15. However, it was revised to ` 10,886
crore in RE 2014-15. In BE 2015-16 it is estimated at
` 10,753 crores. For 2016-17 and 2017-18, this
component of receipt is estimated to be flat at ` 10,500
crore as the government would not encourage net
lending (except for the back to back arrangement
made for external loans to States).
(b)

Other non-debt capital receipts

27. Disinvestments in Government PSUs are main

source of receipts under this head. From FY 201314 government decided to create a separate fund,
NIF under Public Account, with the intent that proceeds
from disinvestment will only be deployed for specific
authorized purposes. With this major step forward,
the proceeds will not be available to fund regular
government spending. As per actuals for FY 201314, receipts from disinvestment proceeds accounted
at `29,368 crore.
28. In R.E. 2014-15, disinvestment receipts have
been pegged at ` 31,350 crores, including ` 5,000
crores from sale of SDRs to RBI. For General budget

Borrowings Public Debt and other

Liabilities

29. Of the overall Central Government liabilities (net

of inter-government borrowings), about 92.7 per cent
is domestic and only 8.3 per cent is external as at
end-March 2014. It may be observed that, in Indias
context, despite Indias high gross fiscal deficit (GFD)
during 2008-2013 on account of governments efforts
to safeguard India against slowdown being caused
by global financial crisis, debt position in India is
practically stable (or better) at a time when public debt
position has been deteriorating globally. In RE 201415, net market borrowings through dated securities is
estimated at ` 4,46,922 crore (after the netting ` 6283
crore of buyback). to finance 87.2 percent of gross
fiscal deficit (GFD). Other sources of the GFD
financing such as short term treasury bills, small
savings collections, state provident funds, net external
assistance and cash draw down were budgeted to
finance the remaining 12.8 per cent of the GFD. The
realization from external assistance was higher than
budgeted at ` 9,705 crore. There was negative outflow
from other debts due to higher disbursements than
estimated initially. Similarly, the realization from State
Provident funds had to be revised downwards.
Treasury bill realization also increased due to higher
investment by State governments in the noncompetitive auction T-bills. This was mainly on account
of comfortable cash position of the State Governments
and higher interest rates in auction T-bills as compared
to Intermediate T-bills. Better fiscal management
resulted in reduction of market borrowings by `14,283
crore to `4,46,922 (adjusted for repurchases of Gsecs maturing in 2015-16) crore for fiscal year 201415. Borrowings programme for the year was
conducted smoothly broadly in line with preannounced calendar for borrowings. Auction for
borrowings were reduced by 16,000 during August
14, 2014 to September 30, 2014, from the auction
calendar for first half of financial year 2014-15,
announced in March 2014, after review of Central
Governments cash position. The weighted average
maturity of primary issuances of dated securities in
fiscal year 2014-15 increased to 14.66 years from

12
14.28 years in the previous year, reflecting the
continued efforts by the Government to elongate the
maturity profile of its debt. The weighted average
yields of issuance in fiscal year 2014-15 went
marginally up to 8.51 per cent from 8.48 per cent in
the previous year.

estimated at 46.8 per cent of GDP which will reduce

to 46.1 per cent by the end of 2015-16. With gains of
fiscal consolidation setting in and deficit being
contained, the declining trend will continue. It is likely
to reduce to 44.7 per cent in 2016-17 and 42.8 per
cent in 2017-18. A progressive reduction in debt-GDP
ratio of the Government will ease the interest burden
and allow more space for the government to spend
on other/developmental expenditure without taking
recourse to additional borrowings. Gross fiscal deficit
is projected to decline progressively to 3.9 per cent of
GDP in 2015-16. The MTFP statement projects a
further decline in GFD to 3.5 per cent by 2016-17 and
to 3.0 per cent by 2017-18. Assuming market
borrowings financing at about 86.5 per cent of the
GFD, the net market borrowings are likely to decline
significantly in next three years to 3.2 per cent of GDP
in 2015-16, 3.1 per cent in 2016-17 and 2.6 per cent
in 2017-18. With contraction of government deficit
there will be more room for private investment and
capital inflows. This will also ease inflationary pressure
providing comfort to RBI for easing monetary policy.

30. In line with Governments commitment to fiscal

consolidation measures under the revised roadmap
discussed above, the fiscal deficit for 2015-16 is
budgeted to decline to 3.9 per cent of GDP.
Accordingly, total borrowings requirement for 201516 has been budgeted at ` 5,55,649 crore. However,
in nominal terms net borrowing projections at `
4,56,405 crores shows an increase of 2.1 per cent
over the previous year. In terms of GDP, net market
borrowing is budgeted to decline to 3.2 per cent as
compared with 3.5 per cent in FY 2014-15. Borrowings
through external debt are budgeted at ` 11,173 crores
during 2015-16, increase of 15.1 per cent over RE
2014-15. In nominal terms, on a lower base, the
increase is not substantial. In FY 2015-16, the share
of external debt in the net Central Government debt
Total Expenditure
is declining to 7.6 per cent from 8.3 per cent in FY 3.
2014-15.
(I) Revenue account.
31. Commercial banks are major investor category
(i) Plan Revenue Expenditure.
which currently holds about 45.7 per cent of
outstanding dated securities (at end-Sep 2014). The
deposits of commercial banks during 2014-15 saw a 33. The Plan size in last several years has been
y-o-y growth of 11.6 per cent (as on January 23, 2015), ambitious, though aspirational. It is noteworthy that
which is lower than 15.3 per cent growth seen in the during the 12th plan period starting from 2012-13, the
same period of previous year. Insurance companies budget estimates have been higher than the
are another major investor category in the government achievement in successive years. In fact, to finance
securities, which traditionally has demand from longer such ambitious Plan, higher revenue growth had to
tenor securities. As at end of September 2014 the be targeted, to be revised at lower levels subsequently.
share of insurance companies holding in the central Thus, the exercise became idealism, divorced from
government dated securities increased to 20.6 per the implementation capacity. With the change in the
cent from 19.5 per cent at end of previous financial
institutional arrangement from Planning Commission
year. Provident funds are another stable source of
demand for government securities whose share is to NITI Ayog, an attempt has been made to rectify the
stable at around 7.2 per cent. A significantly higher problems in approach to Plan. The top-down, onegrowth in deposits of commercial banks vis-a-vis the size-fit-all approach has been abandoned in favour of
budgeted growth in net market borrowings of co-operative federalism that encourages States to play
Government implies that the government borrowings more active role in designing and implementing the
programmes for 2015-16 will completed comfortably development agenda based on local conditions. With
without exerting any pressure on availability of financial higher devolution, the Finance Commission has laid
resources for the private sector. Furthermore, down the roadmap for this new paradigm. Thus,
improved share of insurance companies and stability Finance Commission has proposed in letter what
in the share of provident funds in holding of Government had already started implementing in
government securities provide space for further
spirit.
increasing the maturity profile of the Government debt
without increasing the cost.
34.
During 2013-14, government efforts for fiscal
consolidation
resulted in containing total plan
32. Total liabilities of the Government, as a
expenditure
at
4.0
per cent of GDP, lower than the
percentage of GDP, will also see a decline continuing
with the trend in the recent past. At end of 2014-15, a RE 2013-14. The Plan Expenditure for 2014-15 was
total net liability of the Central Government is budgeted at ` 5,75,000 crore with growth of 26.9 per

13
national priorities, and some are legal obligations
(such as MGNREGA) and in order to underline the
Central Governments continued support to national
priorities, especially with regard to schemes meant
for the poor, most of these are proposed to be
continued. It is proposed that only 8 Centrally
Sponsored Schemes be delinked from support from
35. With higher devolution, Finance Commission as the Centre.
also States have called for greater flexibility in the design
37. Certain programmes of the Government will
and implementation of schemes. With higher resources
have to continue unaltered as they are either legal/
at their disposal, States are in position to share the Constitutional obligations, or are privileges available
responsibility of development programmes. Under the to the elected representatives for welfare of their
new paradigm, the Plan spending will be altered. constituents. Further, and more importantly it is
However, there will be transitional issues that need to proposed that the Union Government may continue
be managed smoothly to avoid any disruptions in the to support certain programmes which are for the
field. For F.Y. 2015-16, Plan expenditure is budgeted benefit of socially disadvantaged in an unaltered
at ` 4,65,277 crore, which is 3.3 per cent of GDP and manner from its own resources. In respect of various
0.6 per cent lower than RE 2014-15. In view of higher other centrally sponsored schemes, the sharing
devolution, Centres resource base has shrunk. pattern will have to undergo a change with States
However, in order to meet the spending on social and sharing a higher fiscal responsibility in terms of
welfare programmes, and also to provide sufficiently scheme implementation. Details of changes in sharing
to on-going schemes and programmes during the pattern will have to be worked out by the administrative
transition phase, additional resources mobilization has Ministry / Department on the basis of available
been planned to provide adequately to the development resources from Union Finances. In addition, Budget
2015-16 provides additional allocation of ` 20,000
needs. Going forward, with fiscal consolidation and
crores to NITI for interventions as special assistance.
limited revenue share, it is projected that as ratio of
GDP the total expenditure budget of the centre will (ii) Non Plan Revenue Expenditure
contract, with lesser Non-Plan and Plan size.
Accordingly, it is projected that resources for plan 38. Non Plan Revenue Expenditure of government
expenditure will be at 2.9 per cent and 2.7 per cent of mainly consists of its establishment expenditure,
interest payments, defence expenditure, subsidies,
GDP in FY 2015-16 and FY 2016-17 respectively.
statutory grants to States and other residual items.
36. It is important to note that while giving its The Non Plan Revenue Expenditure jumped from 8.4
recommendation for higher devolution to States, FFC per cent of GDP in 2007-08 to 10.2 per cent of GDP
has taken into account the transfer of central funds to in 2009-10 mainly due to implementation of Sixth Pay
States through various developmental programmes Commissions recommendations. Since then it has
and subsumed this item in general transfer. Thus, come down to 8.7 per cent in 2014-15 BE due to
with greater sharing of resources with States, it is various expenditure reform measures undertaken by
assumed that Centre would withdraw from welfare the Government. In RE 2014-15 Non-plan revenue
programmes. However, Budget 2015-16 continues expenditure is revised downward marginally at `
with central allocation for the needy and vulnerable,
12,13,224 crore which is 9.3 per cent of GDP and
as sudden withdrawal from these programmes may
shows reduction of 0.5 per cent over BE 2014-15.
lead to hardship. Schemes that are in nature of
For FY 2015-16, Non-plan expenditure is estimated
providing helping hand to the needy and poor need to
be continued at national level; to ensure uniformity at ` 13,12,200 crore with the growth of 7.6 per cent
and continuity. Accordingly, different components over BE 2014-15 and 8.2 per cent over RE 2014-15.
under the Plan have been categorized under three Over the projection period, it is expected at 9.2 per
sections as depicted in Statement 16 and 16-A of cent and 8.9 per cent of GDP during FY 2015-16 and
expenditure budget volume 1. Significantly, over 30 FY 2016-17 respectively. Various components of Non
Centrally Sponsored Schemes that have been Plan Revenue Expenditure are detailed below.
identified which ought to have been transferred to the
(a) Interest Payments
States because expenditure on them has already been
taken into account as State expenditure, in arriving at
the greater devolution of 42% to the States. However, 39. Due to fiscal expansion undertaken by the
keeping in mind that many of these schemes are Government, interest payments increased sharply

cent over the performance in last financial year. In

RE 2014-15, Plan expenditure is revised at ` 4,67,934
crore, which shows reduction of 18.6 per cent over
BE 2014-15. The downward revision was necessitated
due to lower revenues and lower pace of utilization
following scheme revision in few cases.

14
post global economic crisis. As a percentage of net
tax revenue of the Centre, interest payments jumped
from 38.9 per cent in 2007-08 to 43.4 per cent in 200809 and further to 46.7 per cent in 2009-10. In BE
2014-15 expenditure under this component was
estimated at 43.7 per cent of net tax to centre which
has been revised at 45.3 per cent in RE. The increase
in the revised estimate is essentially due to lower tax
realization. The factors that have impacted interest
payment during the recent period are the increased
debt stock due to stimulus measures along with the
fiscal slippage during 2011-12 and relatively tougher
interest rate regime that has been in existence for
quite some time now.

(c)

41. Defence Expenditure on the revenue account

mainly comprises of salary expenditure of defence
forces and their operational expenses. Defence
Revenue Expenditure was estimated at ` 1.34 lakh
crore in BE 2014-15. In RE 2014-15 it has been
revised upwards marginally at ` 1,40,405 crore. For
FY 2015-16 Defence Revenue Expenditure is
estimated at ` 1,52,139 crore i.e. growth of 13.2 per
cent and 8.4 per cent over BE 2014-15 and RE 201415 respectively. During projection period i.e. FY 201617 and 2017-18, it expected to grow by 15 per cent,
average. Additional provision has been assumed in
the financial year FY 2016-17 and 2017-18 to
accommodate the likely impact of VII Pay
Commission. Total Defence expenditure as ratio of
GDP is projected to remain at 1.8 per cent of GDP in
FY 2016-17 and 2017-18 respectively.

(e)

Pensions

42. The expenditure on pension payments of the

Central Government includes both defence as well
as civil pensions. Pension payment, in nominal terms
was estimated at ` 74,076 crore in RE 2013-14 and
at the year-end it was accounted at ` 74,896 crore.
In BE 2014-15, pension payment in nominal terms
was estimated at ` 81,983 crore. In RE 2014-15, it
has been revised at ` 81,705 crore. The pension
payment of Central Government for the past few years
has been growing faster than the salary expenditure.
The main reason for this is that there is an increase in
number of pensioners due to higher retirements and
increased life expectancy. In view of the likely impact
40. In BE 2015-16, interest payment is projected at of VII Pay Commission, Pension payment of the
49.6 per cent of net tax to Centre, which is marked Government likely to be about 0.7 per cent of GDP in
increase over the last year despite fiscal consolidation FY 2016-17 and FY 2017-18 respectively.
underway. The increase is again due to the shrinking
revenue base of the centre following higher devolution
(d) Non Plan Grants to States
recommended by FFC. In fact interest payments of
the centre as a ratio of gross tax revenue shows the 43. Non Plan Grants to States mainly comprises of
secular trend of decline from 32.9 per cent in RE 2014- the grants recommended by the Finance Commission.
15 to 31.5 per cent in BE 2015-16. With the fiscal In BE 2014-15 Non-plan Grants were estimated at `
deficit coming down and easing of inflationary 69,084 crore. In RE 2014-15, Non-plan Grants to
pressure, it is expected that interest rates would be States were revised at ` 79,166 crore. In the view of
falling in the years to come. Deficit reduction and fall recommendations of XIV Finance Commission, for BE
in interest rates would create positive space for the 2015-16, non-plan Grants to States are estimated at
private sector to raise resources at lower cost. With ` 1,07,559 crore. Normally most of the grants
policy of fiscal reforms gaining ground, over the recommended by Finance Commission are
medium term it is expected that ratio of interest recommended to flow from second year of the award
payment to net tax revenue of the Centre will come period to ensure a convenient preparatory period for
down to 47.5 per cent in FY 2016-17 and 45.1 per the State Governments. Based on these assumptions
Non Plan Grants have been projected at 0.6 per cent
cent in FY 2017-18.
and 0.5 per cent of GDP in 2016-17 and 2017-18
(b) Defence Services
respectively.
Major Subsidies

44. As per actuals for 2013-14 expenditure on major

subsidies was accounted at ` 2,44,717 crore. This
had been constituted by food, petroleum and fertilizer
at ` 92,000 crore, ` 85,378 crore and ` 67,339 crore
respectively. In BE 2014-15, Major subsidies were
budgeted at ` 2,51,397 crore which have been revised
at`. 2,54,913 crore in RE 2014-15. Major subsidies
have been budgeted in 2015-16 at 1.6 per cent of
GDP as against 2.0 per cent in BE 2014-15. Over the
projection period, major subsidies are estimated at
1.6 per cent of GDP. In order to achieve the fiscal
targets of fiscal consolidation it is essential that
government follows the policy of progressively
reducing the expenditure on subsidy through improved
targeting of beneficiary.

15
45. Major subsidies are extremely critical from the
viewpoint of fiscal consolidation and are the most
important factor in determining the success of
Government in meeting its fiscal targets. The effort
of Government would be to address this issue with a
two pronged strategy. Government is committed to
progressively pursuing subsidy reforms in a manner
that will ensure efficient targeting of subsidies to the
poor and needy, while also saving scarce financial
resources for investment in infrastructure and pursuit
of new development programmed announced by the
Government. It is pertinent to mention that both
petroleum and diesel are now fully decontrolled. The
Government has launched a new universal Direct
Benefit Transfer Scheme for LPG from 1st January,
2015 onwards. The new scheme will cover both
Aadhaar card and non-Aadhaar card holders. The
subsidy will be transferred directly into the bank
accounts of cash-transfer-compliant customers in a
manner that will avoid duplication and prevent
leakages.
46. On fertilizers, Nutrient based subsidy regime has
been working well in the P&K sector. What is now
urgently required are certain pricing reforms in the
urea sector with an immediate price correction for
urea, new Nutrient based Urea Policy. This is not
only essential from viewpoint of the size of the subsidy
bill but also from the viewpoint of balanced use of N,
P & K nutrients. Government had notified the New
Investment Policy (NIP)-2012 on 2nd January, 2012
to encourage investments in urea sector leading to
increase in indigenous capacities and reduction in
import dependence. The policy will also lead to
savings in subsidy due to import substitution at prices
below IPP. Over long term, there is need to increase
indigenous production of fertilizers which will help
reducing dependence on imports and make prices
much more stable.
47. Government has also launched a dedicated
scheme for end-to-end computerization of Public
Distribution System throughout the country. 11 States
have already joined the National Food Security Act
Framework and as the required systems are put into
place the other States will follow suit. Simultaneously
drive has been launched to ensure universal coverage
of Aadhaar throughout the country. Decentralised
Procurement and distribution of foodgrains, end-toend computerization, combined with universal
Aadghaar coverage, improving the operational
efficiency of the FCI are some of the measures that
will set the stage for the next generation food subsidy
reforms. Government will actively pursue this during
the course of this financial year. As already explained
without focused subsidy reforms, the process of fiscal

consolidation will be difficult. The expenditure of

Government on major subsidies is projected to come
down from 2.2 per cent of GDP in 2013-14 to 2.0 per
cent of GDP in 2014-15. It is expected that with active
policy reforms the incidence will progressively reduce.
Over the projection period it has been proposed to
contain at 1.6 per cent in 2016-17 and 2017-18
respectively.
(II)

Capital Outlay

48. As per the acctuals 2013-14, total capital

expenditure of Government was ` 1,87,675 crore and
it was estimated grow up to ` 2,26,781 crore in BE
2014-15. However, in RE 2014-15, it has been revised
at ` 1,92,378 crore. In BE 2015-16, total capital
expenditure of Government is estimated at Rs.
2,41,431 crore which is 6.5 per cent higher than BE
2014-15 and 25.5 per cent higher than RE 2014-15.
On the non-plan side, the major portion of Capital
Expenditure consists of the Defence Capital
Expenditure. In BE 2014-15, the Defence Capital
Expenditure was estimated at ` 94,588 crore. For FY
2015-16, it has been retained at ` 94,588 crore, a
growth of 15.4 per cent over RE 2014-15. On an
increased based, it has been assumed at nominal
growth of 15.9 per cent in FY 2016-17. However,
growth of 9.1 per cent has been projected for FY 201718, which is consistent with the overall resource
availability and other demands of Centres resources.
49. The Plan Expenditure of GoI mainly consists of
gross budgetary support to gross Railway
Expenditure, of national highways investments in
government companies and banks and loans to State
Govt. and PSUs. Since the overall effort has to be to
reduce the revenue deficit of the Government, it is
essential that within the overall Plan Expenditure, the
expenditure on capital components grows faster than
the revenue component. Plan Capital Expenditure is
budgeted at 29.1 per cent of total Plan Expenditure in
2015-16 and is projected to be 25.6 per cent of total
Plan Expenditure in 2016-17; and further increase to
25.7 per cent in FY 2017-18.
4. GDP Growth
50. Central Statistics Office (CSO) has recently
undertaken a revision in National Accounts aggregates
by shifting to the new base of 2011-12 from the earlier
base of 2004-05. Under the revised base, the CSO
has furnished estimates for three years from 2011-12
to 2013-14 and the Advance Estimates for 2014-15.
The estimates of GDP (both at current and constant
market prices) and growth rates released by the CSO
under the new 2011-12 series are different from the

16
figures released earlier under the 2004-05 series.
Economic growth, measured by growth in GDP at
constant market prices, estimated at 5.1 per cent and
6.9 per cent respectively during 2012-13 and 201314 under the new series, was higher than the
corresponding figures of 4.7 per cent and 5.0 per cent
released under the 2004-05 series in May 2014. GDP
at current market prices for the year 2013-14 was
estimated (under the new series) at ` 11345056 crore.
The Advance Estimates for 2014-15 has estimated
the GDP at current market prices to attain a level of `
12653762 crore, with a growth of 11.5 per cent, which
can be decomposed into a real growth of 7.4 per cent
and an implied inflation of 3.8 per cent. Assuming
that the economy picks up growth momentum, under
stable prices and with the reform measures of the
Government making further impact, the GDP at
current market prices can be expected to achieve a
growth of 11.5 per cent in 2015-16 (real growth of 8.5
per cent and an implied inflation of 2.8 per cent) to
attain a level of ` 14108945 crore. With gradual growth
acceleration and under assumptions of continuing
price stability, the growth rate of the GDP at current
market prices during 2016-17 and 2017-18 can be
expected to be around 12.2 per cent and 12.4 per
cent respectively.
C.

Assessment of Sustainability relating to

(i)

The balance between Revenue Receipts

and Revenue Expenditure

51. In the revised estimate for 2014-15 the Non-Plan

expenditure is set at 107.7 per cent of total revenue
receipts of the Government. Ratio of Non-plan
expenditure to revenue receipts of more than one
implies use of borrowed resources for consumptive
expenditure. This imbalance needs to be corrected
to ensure greater fiscal space for undertaking
developmental works. However, with revenue receipts
of the centre shrinking due to higher devolution in
2015-16, it is estimated that Non-plan expenditure will
rise to 114.9 per cent. Growing interest payments,
rising establishment costs including impact of VII Pay
commission, subsidies and defence allocations makes
this item of spending more rigid. Fiscal consolidation
and higher devolution add to the increase in this ration.
However, going forward it is expected that with growing
revenues and containing the rise under Non-plan
spending will provide the opportunity to reverse this
trend and bring this item of spending within sustainable
limits. Thus, the ratio of Non-plan expenditure to
revenue receipts would progressively reduce to 112.4

per cent and 108 per cent over the medium term
period. The revenue deficit has progressively declined
from high of 4.5 per cent in 2011-12 to 3.1 in 2013-14
and is projected at 2.9 per cent in RE 2014-15; it is
still some distance away from the milestone of 2 per
cent set for 31st March, 2015. Further, under
prevailing conditions, the fiscal framework
assumptions yield a revenue deficit of 2.4 per cent
which is above the two per cent limit prescribed by
the new FRBM regime. It is noteworthy that the
revenue deficit projections work out to 2.0 per cent in
FY 2016-17, achieving the target set under the FRBM.
52. Similarly, effective revenue deficit has come
down from 3.0 per cent in 2011-12 to 2.5 per cent in
2012-13 and stands at 2.0 per cent in 2013-14. It is
estimated at 1.8 per cent in RE 2014-15, while it was
required to be eliminated by closure of the financial
year. Following the FFC, there are major changes in
the nature of funds transfers to States, as explained
in earlier sections. In order to protect the interests of
poor and needy, Government has decided to continue
welfare programmes while giving greater space to
States in development schemes, with higher resources
at their disposal. Thus, grant-in-aid for capital
expenditure is subsumed within untied funds
transferred to States. In the backdrop of such
changes, the efficacy of effective revenue deficit as
measure to capture end-use of resources needs
critical examination. It is pertinent to mention that
FFC also recommends for abolition of this parameter.
As per the Action Taken Report, Government has
informed the Parliament that the recommendation will
be examined.
53. The targets on revenue account are proposed
to be re-set along with fiscal deficit, following the
recalibration of fiscal rules in the aftermath of finance
commission impact, as explained in earlier section. It
is expected that with re-structuring of fiscal relations
between the Centre and the States in the 14th FC
period, necessary correction on the imbalances in
public finance on the revenue side will be carried out.
Government has re-affirmed its commitment for fiscal
reforms and acknowledged the need for restructuring
the Plan schemes. However, review and restructuring
of on-going schemes will have to be phased out, to
protect the interest of poor and vulnerable sections of
the society. Committed liabilities have to be met before
affecting such changes. Thus any fundamental
change in respect of the mix of expenditure may be
implemented over a period of time.

17
The use of capital receipts including market per cent in FY 2013-14. However, with lower revenue
borrowings for generating Productive Assets base in FY 2015-16, this ratio is likely to increase to
49.6 per cent. None-the-less with improvement in
54. Another important parameter to assess the public finances further, it is estimated to reduce to
quality of government spending is the ratio of Plan 47.5 per cent in FY 2016-17 and 45.1 per cent in FY
expenditure to fiscal deficit, which a pointer towards 2017-18.
deployment of borrowed resources. In B.E. 2015-16,
the total Plan expenditure of ` 4,65,277 crores is 83.7 55. Capital expenditure which has witnessed
per cent of the estimated fiscal deficit. With pressure declining trend in last several years. As ratio of total
on tax revenues continuing and Non-plan expenditure expenditure, the capital expenditure has reduced from
remaining higher, it is expected that the ratio will a high of 23.2 per cent in FY 2003-04 to around 12 per
decrease marginally to 83.2 per cent in FY 2016-17 cent in recent years. There is need to improve the
and improve in FY 2017-18 to about 89.5 per cent, capital spending to provide trigger investment and give
pointing towards marked improvement in deployment impetus to growth. Despite revenue crunch and
of public resources towards development. Part of pressure on the Plan, capital spending in FY 2015-16
fiscal reforms is targeted to bring down debt to GDP has been provided significant jump of 25.5 per cent
ratio and interest payment to net tax revenue of Centre over RE 2014-15. It is projected at 13.6 per cent of
gradually to a sustainable level so as to make available total expenditure, improvement over 11.4 per cent in
precious public resources for developmental RE 2014-15. The allocations in core infrastructure such
purposes. The Interest payment to net tax revenue as Railways, Roads etc. have been adequately
of the Centre has progressively come down to 45.9 provisioned.
(ii)